It’s time to abandon your Nvidia (NVDA) obsession for a moment.
AI is changing the data center landscape and revealing an entirely new path of infrastructure demands – a hidden investment opportunity that is currently undervalued by Mr. Market, according to Morgan Stanley.
The unknown piece: Power generation producers.
“The opportunity is around infrastructure… everything from power generation, power electronics, data centers – that growth rate is expected to accelerate,” Morgan Stanley’s Stephen Byrd told Yahoo Finance Live (video above).
Generative AI processing, which is typically done on graphics processing units (GPU), requires much more power due to higher computational requirements. This need for more energy is fueling the rapid growth of data centers across the country, which is putting pressure on the country’s already overburdened electrical grid.
“Data centers not only facilitate AI, they are the backbone of our industries, our commerce, our transportation, our healthcare. These are mission-critical infrastructures. Therefore, it will be important that as we facilitate this new industry, we do not crowd out existing industries,” ClearView Energy Partners Managing Director Timothy Fox told Yahoo Finance.
The International Energy Agency (IEA) estimates Global data center electricity consumption could jump from 460 TWh in 2022 to more than 1,000 TWh in 2026, roughly equivalent to Japan’s electricity consumption.
That’s a potential benefit for power generation producers like Bloom Energy (BE), according to Byrd. He told Yahoo Finance that the fuel cell company is among a group of companies “well-positioned to meet the growing power needs of GenAI enablers.”
“The stock hasn’t performed well, but this is the type of technology that could allow data center developers to get new centers operational very quickly,” Byrd said. “The time it takes to turn on is absolutely critical and is incredibly valuable economically… Bloom Energy fuel cells can be deployed in 50 days.”
During Bloom Energy’s earnings call last quarter, CEO KR Sridhar told analysts that he sees AI data centers as the company’s “biggest segment” for growth over the next decade.
“The sales funnel for this industry alone is huge, not in megawatts, but in gigawatts,” Sridhar said.
In addition to the manufacturer of fuel cell electricity generators, other independent power producers, including nuclear power plant owners, are also poised to grow from the future construction of data centers.
Bank of America research analyst Paul Cole sees Constellation Energy (CEG), Public Service Enterprise Group (PEG), Vistra (VST), NextEra Energy (NEE) and Dominion Energy (D) among the “clear beneficiaries” of the increase in energy demand.
While AI energy use has soared over the past year, Wall Street professionals tell Yahoo Finance that the industry is still just scratching the surface when it comes to energy consumption.
“GenAI growth, in terms of electricity growth, will be around 100% per year for many years. As the cost of computing falls, new use cases appear, so the demand for computing will only increase more and more. We are at the beginning of this dynamic and now investors are starting to look at what I consider the value chain for powering these data centers,” Cole added.
Sean Smith is an anchor at Yahoo Finance. Watch Seana every morning on Yahoo Finance live starting at 9 a.m. ET. Follow Smith on Twitter @SeanaNSmith. Tips on business, mergers, activist situations or anything else? Email seanasmith@yahooinc.com.
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